Whisky investment: Can the Scotch boom continue?

Nov 1, 2013
Jane Lewis

As whisky prices soar we look at ways of turning liquid gold into real treasure

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Two decades ago, a bottle of whisky from the Port Ellen distillery on the Isle of Islay would have set you back around £30. This week some 3,000 went on sale priced at £1,500 each, and they'll probably rocket again on the secondary market. The reason? Rarity. 

In 1986, the distillery - which produced one of Islay's most distinctive single malts, with a deep peaty taste - was shut down, a victim of plummeting demand for top-end whiskies. These days the most pressing problem facing the owner of the residue stock, Diageo, is how to value the few remaining Port Ellen casks. As the company observes: "future pricing is going to be very tricky".

Another day, another tale of whisky galore. In Scotland they call it uisge beatha: the water of life. And, as the world's aspiring classes have adopted it as their tipple of choice, it has certainly given exports a life-enhancing boost. They have almost doubled since 2007 to £4.3bn, and whisky now "accounts for more than 25 per cent of the UK's entire food and drink overseas market," says Campbell Evans of the Scotch Whisky Association. No wonder Alex Salmond has got a bee in his Tam O' Shanter about where the proceeds should go.

Soaring prices have both spurred, and been fuelled by, an investment bonanza in what some call "liquid gold", with returns of late certainly living up to that name. According to a recent analysis by investment house Whisky Highland, a £100,000 investment in the top 10 performing bottles back in 2008 would now be worth more than £400,000 - a gain of more than 300%. Whisky, as one expert observes, has become the "alternative alternative investment", with records for fine and rare bottles being constantly broken at auction.

According to the Guinness Book of Records, the most expensive ever sold is a $460,000 bottle of 64-year old Macallan, packaged in a Lalique crystal decanter sold by Sotheby's in New York in 2010 But prices of rare malts like The Dalmore have been consistently hitting £120,000 per bottle - and the market expects the trend to escalate.

"At the moment, rare bottle auctions account for just over £3m in sales," notes David Robertson, rare whiskies director at White & Mackay, which owns The Dalmore. But sales are growing at a rate of 20 per cent a year and, by 2020, will be worth nearer £17m. "Only real aficionados used to buy whisky at auction," he says. But, of late, mainstream investment punters have been piling in.

Indeed, the market for fine malts appears buoyant wherever you look on the price spectrum. For example, a Macallan special commemorative edition to celebrate the marriage of Prince William and Kate Middleton which cost £150 a bottle in 2011, is now selling for around £900.

Cue the inevitable talk of a bubble in Scotch prices. As the history of Port Ellen illustrates, the market has a history of turbulence - and some reckon investors could be in for one hell of a hangover when the bottom eventually falls out of the whisky barrel. Not least because Scotch, while physically liquid, isn't a liquid commodity in the financial sense of the word. If you need to get out in a hurry, you could find yourself soaked

For the moment, Robertson reckons the golden age of whisky has legs. "It is simply a case of market forces; growing demand for a decreasing stock of bottles means that the prices are going up". And there's no imminent sign of demand falling. International Wine & Spirit Research reckons global whisky consumption levels are likely to rise 12 per cent from 2012 to 2016 - more than double the rate of any other main spirit category, bar Cognac - thanks to the seemingly unquenchable thirst of emerging market drinkers. And, if the past is in any guide, the rising popularity of mainstream brands will only serve to push prices of investment grade scotch higher.

If you are sold on investing in a dram or two, what are the best tips?

First, pick single malts from renowned distilleries. While there are a number of good investment-grade whisky blends out there, it's the history and heritage of single malts that most collectors seek out. To gauge recent trends, check out the Whisky Highland Index, where top performers of late include: The Macallan, The Dalmore, Port Ellen, Glenfiddich and The Balvenie.

Secondly, look for single cask releases and very limited volumes. Perhaps the easiest way to hunt down rarity is to look for distilleries that have closed, ensuring an absolute finite supply in the market. Names like Port Ellen and Brora have achieved cult status among connoisseurs.

Finally, buy what you want to drink. If the bottom does fall out of the market, you'll at least have the pleasure of swallowing your losses. Robertson advises Scotch novices to buy two bottles. Keep one and drink one, he says. That way, you'll be "doing your bit to take some supply out of the market, helping to push the price of your remaining bottle upwards".

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We can only hope it continues.